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FEAR NOT Brave Investors
Strange times But remember The Joker once served as the Iranian ambassador for the United Nations.
Leverage, Risk and Inflation
The Week That Was – What Lies Ahead?
The week began with the fallout from the Archegos collapse, while the facts are not clear yet we know from multiple reports it appears Archegos had fund equity of around $10 billion with positions in the range of $50 billion to $100 billion. That is a a leverage ratio between 5 and 10 to one. For background in 2012 the hedge fund settled an insider-trading settlement back and was converted to a so-called “family office” that enjoys much less onerous reporting requirements.
The founder of Archegos, Bill Hwang was a protégé of hedge-fund legend Julian Robertson at Tiger Asset Management, before founding “Tiger Cub” Tiger Asia Management in 2001. With all that history one has to ask why would he overlooked the risks. Furthermore why would major global securities firms such as Nomura, Credit Suisse, Goldman Sachs, Deutsche Bank, Morgan Stanley and Wells Fargo all readily provide the financing of such behavior?
The answer for a large part is the absence of moral hazard with repeated Federal Reserve market bailouts in an environment of some would say obscene liquidity pumps. Pure greed is the other part, not wanting to miss out on fees. The obvious question is, how deeply ingrained is this attitude through the markets?
Despite the Archegos chaos in a shortened pre-Easter week we saw more record highs and a strong US Jobs report released Good Friday to set up the week ahead and the first quarter earnings season. Next week also includes the Institute for Supply Management’s services figures and the producer price index.
The bond market will dial in to for the Federal Reserve meeting minutes Wednesday and Fed Chairman Jerome Powell appears Thursday on an International Monetary Fund panel. Treasury bonds continue to distort risk profiles after the worst quarter since the aftermath of Trump’s surprise U.S. presidential election result. With the likelihood of another massive government stimulus package based on infrastructure spending as high as $3 trillion. The concern is that Biden tax increases would offset the stimulative benefits to the economy and the impact on the bond market. Given all this pension funds quarter-end rebalancing comes right as President Joe Biden unveils his plans.
After the monthly and weekly employment data the market will be going though whether the recent stimulus rounds are working with in the background of the Federal Reserve Continuing to downplay inflation risk.. We continue to see more rotation from tech to value stock.
Why the angst in the bond market? The FOMC presented new economic projections including a forecast of 6.5% for gross domestic product this year with PCE inflation going to 2.4% this year, but falling to 2% next year. Powell reiterated that the Fed sees only a temporary pickup in inflation this year because of the base effects against last year’s numbers when prices fell. The Fed will target an average range of inflation around 2%, meaning it could exceed that threshold for some time which is a change to the Fed’s ground rules. The majority of Fed officials did not see any interest rate hikes through 2023. With the passing of the $1.9 trillion splurge a FOMO surge lifted stocks last week but now all eyes on yields dampened the enthusiasm.
What concerns bond holders and impacts stocks over the past weeks is the Fed appears to be too Blaise about inflation. This view got added weight when crude oil hit the highest prices since 2019 after OPEC decided to stay pat on production for April. But since then Crude has fallen over 12% in just a week from those highs. Hence why Powell has said “We’re going to wait to see signs of actual inflation or the appearance of other risks that could threaten the achievement of our goals. And we’ve seen that the economy can sustain exceptionally low levels of unemployment without inflation.”
There is a view that Powell also refuses to be dictated to and set the bond bullies up for failure. The V reversal this month suggests that. Air needs to come out of the market, particularly Tech, this is best illustrated by the ARK Funds and Semi-Conductor SMH ET’s (see below). From here we have another massive $1.9 Trillion stimulus. Is that enough to keep asset prices elevated, hard to fight the Fed and that kind of cash floating around. Watch the argument from analysts that higher yields mean the economy is growing, stocks are value versus hyperinflation is on its way.
After being up over 90% Bitcoin reversed sharply from $44,000 to over $60,000. One could argue bonds and crypto are at the opposite ends of the spectrum, but all they in 2021? Astonishing and symptomatic of so many confluences which we will discuss later. These added further price pressures on food and energy come after we discussed inflationary pressures are building in the US, and a truly tidal wave of Treasuries is in the pipeline. Not hard to grasp Bond market nervousness.
Raise your eyes and look at the stopped car in front of you you may want to hit the brakes.The pandemic is not close to our greatest worry, nor is energy it seems. The runaway credit bubble in the era of delusion and entitlement has multiple unintended consequences or are they intended? The stockmarket has lost rationality the danger is should the bubble pop the consequences of a historic debt crisis in a deeply divided nation and unprepared social and geopolitical backdrops could be earth shattering as the Fed disregards asset inflation and bubble dynamics.
Of note during the Arctic Blast with the EV mania and the Biden Admin Green deal push we noted the spike in spot Texas electricity prices pushing the cost of electricity not on fixed plans to unheard of levels. Bloomberg reported on recharging a Tesla from about $18 to $900. Yes the price spike was fleeting but it should remind the sane amongst us the broader issue of the disconnect between the push toward electrification and our massively inadequate energy infrastructure. This is the area that needs investment, not just for our glorious EV but for all energy and possible disasters like we just saw.
Comments from Yellen and others on the same page suggest that low rates conveniently push potential debt instability far out into the future. The Fed is poised to expand its balance sheet, by adding liquidity to the tune of $1.5 TN this year with no regard for rampant asset price inflation and bubbles. Now the new administration has control of the blank checkbook and is determined to us it with no long-term thinking or planning; everything is short-term focused. Washington is gambling with our nation’s future, from kicking cans down the road to rolling drums down a hill.
- Part A: Stockmarkets
- Part B: Bonds
- Fed and Banks
- Part C: Commodities
- Energy – Oil and Gas
- Gold and Silver
- Part D: Foreign Exchange
- Geopolitics and Economics
- Economy Week ahead
PART A – Stock Markets
Highlights – USA
- S&P500 gained 1.1% (up 7.0% y-t-d)
- Dow added 0.2% (up 8.3%).
- Utilities increased 0.9% (up 1.7%).
- Banks slipped 0.2% (up 24.0%), Broker/Dealers rallied 1.3% (up 19.2%).
- Transports rose 1.0% (up 17.9%).
- S&P 400 Midcaps gained 0.8% (up 14.8%), and the small cap Russell 2000 recovered 1.5% (up 14.1%).
- Nasdaq100 advanced 2.7% (up 3.4%).
- Semiconductors surged 4.3% (up 15.9%). Biotechs rallied 1.8% (down 2.9%).
- Though bullion slipped $4, the HUI gold index jumped 3.1% (down 7.8%).
Highlights – Europe Stocks
- France’s CAC40 rose 1.9% (up 9.9%).
- German DAX equities index jumped 2.4% (up 10.1%).
- Spain’s IBEX 35 equities index gained 0.9% (up 6.2%).
- Italy’s FTSE MIB index rose 1.3% (up 11.1%).
- U.K.’s FTSE equities index was little changed (up 4.3% y-t-d).
Highlights – Asia Stocks
- Japan’s Nikkei Equities Index rallied 2.3% (up 8.8% y-t-d).
- South Korea’s Kospi index advanced 2.4% (up 8.3%).
- India’s Sensex equities index jumped 2.1% (up 4.8%).
- China’s Shanghai Exchange rose 1.9% (up 0.3%).
- Australia’s S&P/ASX 200 gained 1.76%. That is the biggest increase since November’s 9.96%, a record for the index. The ASX rose 0.6% to close at a six-week high of 6828.7.
Highlights – Emerging Stocks
- EM equities were mostly higher
- Brazil’s Bovespa index increased 0.4% (down 3.2%),
- Mexico’s Bolsa slipped 0.3% (up 7.2%).
- South Korea’s Kospi index advanced 2.4% (up 8.3%).
- India’s Sensex equities index jumped 2.1% (up 4.8%).
- China’s Shanghai Exchange rose 1.9% (up 0.3%).
- Turkey’s Borsa Istanbul National 100 index rallied 3.5% (down 3.2%).
- Russia’s MICEX equities index rose 2.0% (up 8.2%).
From rebalance as a natural reversion after the bull mania we have surged with another speculative rush. This after Dow ended the second quarter with a 17.8% gain, the biggest quarterly rally since the first quarter of 1987, when it ripped up 21.6%. IS that enough to rebalnce and go higher? The S&P 500 had its biggest one-quarter surge since the fourth quarter of 1998, soaring nearly 20%. The Nasdaq Composite jumped 30.6% for the quarter, its best quarterly performance since 1999.
Stock valuations, as measured by forward price-to-earnings ratios are near their highest level since the 2000 dot-com boom.
Biggest SPX Stock Winners and Losers Last Week
S&P 500 Index Technical Analysis via @KnovaWave
SPX rallied again to new all time highs, after testing and spitting tenkan san & 8/8 Murrey Math at the Daily Cloud & with a positive Chikou retest. We have a number of alternatives of degree (iii) or (iv) of 5, Keep it simple support is Tenkan and Kijun as Chikou rebalances.
The break up was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in.
Weekly SPX spat the break channel it had been tracing since the break of v of (III) or (V). Key was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan. To repeat “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.” Keep an eye on the putcall ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as chickou rebalances
A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets.
Watching Semiconductors cleanly with Murrey Math levels and Tenkan – keys are previous high at +1/8 and Chikou rebalance patterning. Weekly +2/8 around 250 key number recognition factor also.
Amazon high was MM +3/8 and from there has built a large weekly flag which it closed under after breaking the Tenkan and Kijun, watch if Kijun closes through Tehkan for a bigger move.
US Stocks Watch
Earnings Week Ahead
The official earnings season is due to ramp up in mid-April and overall S&P 500 first-quarter earnings are expected to jump 24.2% from a year ago, according to Refinitiv IBES. With the US stock markets at record highs the downside to increasing profit expectations is the potential for some disappointments and that could cause adverse or stalled market to potentially. Last quarter the banks big banks kicked off 4th-quarter earnings reports on Jan 15, helped to set the tone for the broader U.S. stock market, as businesses coped with the eleventh month of the pandemic. Banks reaped the rewards of the initial public offerings and record corporate borrowings during the pandemic. Investors (and algos) will focus pn the conference calls and outlooks. Everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals.
Last week we heard from Vaxcyte, Cal-Maine Food, Lululemon Athletica, Chewy, McCormick, BioNtech, FactSet, Blackberry, PVH, Walgreens Boots Alliance, Micron, Dave & Buster’s, Guess, CarMax
This week we hear from:
- Monday starts us off with
- Tuesday with earnings from
- Wednesday Earnings Include
- Thursday Earnings Include
- Friday Earnings include
Constellation Brands, Conagra Brands and Levi Strauss
Good Friday holiday Stock market closed
IPO Week Ahead
The IPO market starts to pick back up with eight IPOs scheduled to raise $2.2 billion in the week ahead.
- Chinese IoT platform developer Tuya (TUYA) plans to raise $806 million at a $10.4 billion market cap. Tuya’s platform offers PaaS and SaaS to over 5,000 customers for the development, management, and monetization of software-enabled devices and services. Fast growing and unprofitable, the company’s customer base includes large brands like Philips and Schneider Electric.
- In its second IPO attempt, Vine Energy (VEI) plans to raise $328 million at a $1.3 billion market cap. This Blackstone-backed natural gas E&P operates in the Haynesville Basin of Northwest Louisiana with approximately 900 drilling locations and 370 net producing wells. Hard hit by the pandemic, the company saw a steep decline in revenue and net income swing negative in 2020.
- Restaurant SaaS platform Olo (OLO) plans to raise $306 million at a $3.1 billion market cap. Olo provides order management software to over 400 enterprise restaurant brands to process and manage orders, payments, and deliveries. Fast growing and profitable, Olo’s platform has benefitted from stay at home orders, and it may see a slowdown post-pandemic.
- The Duckhorn Portfolio (NAPA) plans to raise $300 million at a $1.8 billion market cap. This California-based company produces and sells luxury and ultra-luxury wine under a portfolio of ten brands, sourcing most of its grapes from a network of 225 growers. Despite cost fluctuations from harvest yields, Duckhorn has a track record of strong EBITDA margins and is the only pure play wine producer in the luxury segment.
- Low-cost airline Sun Country Airlines (SNCY) plans to raise $200 million at a $1.4 billion market cap. Sun Country targets the leisure market and family travelers, but also offers charter flights to customers such as casino operators, the US DoD, and college sports teams. Despite cash flow remaining negative, Sun Country has maintained positive EBITDA.
- Chinese biotech Connect Biopharma Holdings (CNTB) plans to raise $150 million at an $863 million market cap. Connect’s lead candidate is currently in a Phase 2b trial for moderate-to-severe atopic dermatitis (AD) in the US, Australia, and New Zealand, with top-line results expected in the 2H21. It plans to initiate additional trials in asthma and chronic rhinosinusitis in the 1H21 and in AD patients in China in the 2H21.
- Lysosomal storage disorder biotech Gain Therapeutics (GANX) plans to raise $40 million at a $129 million market cap. This preclinical biotech is developing small molecule therapies through its proprietary platform, SEE-Tx, to treat diseases caused by protein misfolding, initially focusing on lysosomal storage disorders. Gain Therapeutics expects to obtain preclinical data and start IND-enabling studies in 2021.
- Chinese medicine manufacturer Universe Pharmaceuticals (UPC) plans to raise $30 million at a $126 million market cap. Universe sells Traditional Chinese Medicine that targets elderly consumers to address aging and promote well-being. Due to pandemic-driven facility shutdowns, the company saw revenue decline 10% in the 1H20.
IPO data via Renaissance Capital
Part B : Bond Markets
Highlights – Treasuries
- Investment-grade bond funds saw inflows of $1.687 billion, and junk bond funds posted positive flows of $809 million (from Lipper).
Prior to the recent bond route 2 weeks ago “Investors are flooding the state and local government debt market with cash, driving the biggest weekly influx ever into mutual funds focused on the riskiest municipal securities. Buyers added $2.6 billion to municipal-bond mutual funds in the week ended Wednesday, the 10th straight inflow and the third biggest on record… High-yield funds collected $1.1 billion, outpacing the previous record of $796 million in 2017…” Bloomberg (Danielle Moran and Romy Varghese)
- Three-month Treasury bill rates ended the week at 0.0125%.
- Two-year government yields jumped five bps to 0.187% (up 7bps y-t-d).
- Five-year T-note yields surged 11 bps to 0.978% (up 62bps).
- Ten-year Treasury yields rose five bps to 1.72% (up 81bps).
- Long bond yields declined two bps to 2.36% (up 71bps).
- Benchmark Fannie Mae MBS yields jumped five bps to 2.06% (up 72bps).
All good while markets hold up but take note that the loosest financial conditions in history have supported a record $1.4 trillion of corporate debt issuance. While easy credit availability has supported economic activity, funding new investment whilst keeping vulnerable companies afloat. THe combination of urban shifts through virus and riots fears has fueled a booming MBS market and record low mortgage rates pushing strong housing markets into Bubble risk territory.
Highlights – Mortgage Market
U.S. home prices have been fueled by the lowest mortgage rates in history and relocation demand have risen rose at the fastest pace on record, surpassing the peak from the last property boom in 2005. The median price of a single-family home climbed 14.9% to $315,000 in the fourth quarter, the biggest surge in data going back to 1990. The Northeast led the way with a 21% gain.”
- Freddie Mac 30-year fixed mortgage rates added a basis point to a nine-month high 3.18% (down 15bps y-o-y).
- Fifteen-year rates were unchanged at 2.45% (down 37bps).
- Five-year hybrid ARM rates were unchanged at 2.84% (down 56bps).
- Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up four bps to 3.29% (down 68bps).
Highlights – Federal Reserve
- Federal Reserve Credit last week declined $43.2bn to $7.642 TN. Over the past 81 weeks, Fed Credit expanded $3.915 TN, or 105%. Fed Credit inflated $4.831 Trillion, or 172%, over the past 438 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $15.1bn to $3.552 TN.
- “Custody holdings” were up $213bn, or 6.4%, y-o-y.
- Total money market fund assets jumped $49.2bn to $4.497 TN. Total money funds rose $100bn y-o-y, or 2.3%.
- Total Commercial Paper sank $33.5bn to $1.100 TN. CP was down $5.5bn, or 0.5%, year-over-year.
We do know we have massive speculation pockets, viz a viz the Meme or GameStop, Weed stocks and cryptocurrency spectacles in just the matter of weeks. The Fed is today throwing additional fuel on historic speculative manias.
- The Fed QE infinity programme is a yield curve control policy with long government bond yields coming down. Bond supply and continued central bank resistance to more negative policy rates limits the move. Central banks have been cutting rates and adding liquidity to avoid systematic failure.
Highlights – European Bonds
- Greek 10-year yields fell four bps to 0.82% (up 20bps y-t-d).
- Ten-year Portuguese yields increased three bps to 0.21% (up 18bps).
- Italian 10-year yields added a basis point to 0.63% (up 9bps).
- Spain’s 10-year yields increased two bps to 0.31% (up 26bps).
- German bund yields gained two bps to negative 0.33% (up 24bps).
- French yields rose two bps to negative 0.08% (up 26bps).
- French to German 10-year bond spread was little changed at 25 bps.
- U.K. 10-year gilt yields rose four bps to 0.80% (up 60bps).
Highlights – Asian Bonds
- Japanese 10-year “JGB” yields jumped four bps to 0.13% (up 11bps y-t-d).
Part C: Commodities
- The Bloomberg Commodities Index declined 0.4% (up 7.4% y-t-d).
- WTI crude rallied 48 cents to $61.45 (up 27%).
- Gasoline jumped 2.8% (up 43%), and Natural Gas roses 3.2% (up 4%).
- Copper fell 1.9% (up 13%).
- Wheat declined 0.4% (down 5%).
- Corn gained 1.3% (up 16%).
- Bitcoin surged $4,872, or 9.0%, this week to $58,875 (up 103%).
- Risk markets continue to respond to a Conronvirus outbreak and failed negotiations between Congress and the White House over an additional economic stimulus package to boost economic demand.
- U.S. producers production still under pre Laura levels.
- Higher crude prices prompt some U.S. producers start drilling again with rigs up for the ninth week in a row.
BDI Freight Index
Copper has been a leader in the risk on movement, The weekly channel since the low has maintained the speed of the move with support at the tenkan and tested the median line this week
US Crude Oil (WTI)
WTI spiked higher over $68 Last week to complete a 5 wave structure and test min targets after broke the topside of the channel it had been in since September, In any break, the key is crowd behavior to help tell the story which in energy is often around often geopolitics. We watch ABC corrections and from here we get the energy from the break being balanced. This week that was powered by the Tenkan Spit of a spit. Support is the Tenkan, old channel & prev high confluence. Watch Kijun & 50 dma.. Resistance MM and previous lows.
WTI continued higher after it rebalanced chikou indicative of extreme crowd behavior reverseing at 7/8 after the series of fractals at last Dec wave 1 turn after we had completed 5 waves as marked, from here we watched 3 & 5 waves develop. Price popped after the spit of the 50wma (green) which is now key for support as Tenkan touched Kijun in a kiss of life. Given that we had tremendous energy which bore out in the hghs last seen 2019.
These are special times, recall “After we regained the pattern 261.8% from the extreme (-$40) move. The climax of the larger acceleration lower after broke the weekly uptrend, a fractal of the sharp and all the way to all time lows to negative pricing we have seen mirror replications.” Support is previous channels, tenkan and Kijun. Above we have Murrey Math time and price
US Natural Gas (Henry Hub)
US Natural Gas has played out both the corrective and consolidation phases since it completed its B or IV ( Bull Case) last year since then a series of 3 waves. Bear is this 3 wave is a C of B, bull a developing 5 and we closed under the daily cloud which needs to be recaptured for the natags bulls. Tenkan failed after the arctic blast with more failure after Kijun crossed Tenkan. Support is previous breaks. Resistance is 8/8 and recent highs.
Natty has moved in a series of 3’s since spat the 50 wma to get over weekly Kijun and Tenkan BUT this week all gave way other than the weekly Kijun in it’s larger developing pennant. Support is the cloud and 50wma. A series of fractals, as you would expect in a seasonal commodity with weather a prime mover. Resistance is recent highs and Fib/Murrey confluence.
Key Energy Reports
- Into The Vortex – EIA Reports Draw of -98 Bcf in Natural Gas Inventories
- Around The Barrel – Massive Crude Oil Build of 21 Million Barrels and Gasoline Draw of 13.6 Million Barrels on Texas Storm
- OPEC Monthly Oil Market Report February 2021
- BHP Writes Down Australian Thermal Coal Mine $1.6 Billion
- Environmental Services Charah Solutions To Recycle 8.1 Million Tons of Coal Ash For Dominion
- Spot Gold slipped 0.2% to $1,729 (down 8.9%).
- Silver dipped 0.2% to $25.01 (down 5.3%).
Gold exudes weakness or bulls disappointment after its manic rise to +5/8 weekly and rebalance of the Kikou in 5 waves then tested and failed the Tenkan, kijun and 50 wma. We found support at the wave 1 confluence of the higher degeree 5, To be bullish we would need to recapture the cloud (or the flag 🙂 In sight of the intraday high of $1765.43 is a key harmonic pivot. We appear to have overcome the negative divergence between the weekly chikou, Silver spread and the recent highs BUT NOT yet Tenkan & Kijun fails. From there does the 5 play out? Watch Fibs and chikou.
Silver is back at the cloud, key 38% and 50wma providing support after the correction following the squeeze which forced Gold/Silver which buoyed silver in the PM space, eventually we reversed with a double top Knowing that recall Silver did a fractal of the sharp C up to breakdown level above the cloud fed by divergence from gold reverting. The weekly Tenkan crossing the Kijun would signal more downside. Note the MM
Part D: Forex Markets
John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
- For the week,the the U.S. dollar index added 0.3% to 93.004 (up 3.4% y-t-d).
- Majors for the week on the upside, the British pound 0.3%, For the week on the downside, the Japanese yen 1.0%, the Australian dollar 0.4%, the Swiss franc 0.3%, and the euro 0.4%.
- Minors for the week on the upside, the South African rand increased 2.1%, the Mexican peso 1.3%, the Brazilian real 0.8%, the New Zealand dollar 0.5%, the Norwegian krone 0.5%, and the South Korean won 0.2%. For the week on the downside, the Swedish krona declined 1.0%. The Chinese renminbi declined 0.4% versus the dollar this week (down 0.61% y-t-d)..
Australian Dollar – AUDUSD
Aussie dollar completed a 5 at the pysch 80 level and it back doing a break retest of 8/8 and the weekly tenkan. as one would expect after it completed 5 waves in emotive fashion. It has closed over the 50 Wma in 5 waves but between the Tenkan and Kijun like many commodities.The AUDUSD old three year high of 0.7820 from January 6. is a key option energy point playing out.
New Zealand Dollar – NZDUSD
The Kiwi mirrored the AUD in its wave (iii) spit and has since closed over the panic breakdown (0%) correcting all of the panic muster wave and running to the 38% Fib & 6/8 confluence. Support the Kijun and Resistance Tenkan, which is pivotal. Resistance 6/8 spits.
Canadian Dollar – USDCAD
The Loonie hit in 3 year high this week as it continues to benefit from dollar weakness and commodity currency strength led by the AUSD and NZD after spitting the 261% Fib & Weekly 8/8 after 5 waves lower (USD higher) We closed ender the old 38.8% confluence. Use Fibs for support and resisitance until Tenkan and Kijun catch up
Euro – EURUSD
The Euro continues to correct in flags after broke the channel last May. after ABC (IV) then retested the tenkan to spit the +1/8 in 5 waves from there we closed the week back testing the tenkan (orange) and now Kijun (pink). A question of degree on recent high – 1 complete or 1 of 3?, Watch 3 waves to see development for continuation. Resistance is Fibs as marked. Watch for impulse off Chikou rebalance. Again governed by EURGBP and Bund volatility.
British Pound – USDGBP
EuroPound – EURGBP
Back testing top of outer band and tenkan of Brexit. Johnson price reaction.after its classic ABC out of failure following the X wave. Tenkan will give us a clue if normalcy is returning to the channel trade.
Japanese Yen – USDJPY
Japanese Yen still stuck in channel trade, a series of failures and sharp bounces after X led 3 wave panic. Any change will come from the weekly Kijun Tenkan kiss. Use your #USDJPY Murrey 6/8 0/8 grid for now. #EURJPY #AUDJPY will determine risk on/off
Mexican Peso USDMXN
The Peso corrected the collapse to +1/8 against the USD right back to the 100% Fib We have seen violent moves with outisde uncertainty from oil and COVID19. Use the Gann octave and the extension fibs to help measure the noise.
Turkish Lire USDTRY
The Turkish Lire had corrected back to the weekly cloud to bounce to the Kijun, correcting back through Tenkan after the 200bp hike by the Turkish Central Bank. The USD/TRY had fallen to around 7,80 to bounce to 8/8. The move is a question of degree. Keep an eye on geopolitical risk factors.
Bitcoin has exploded after it spent a year consolidating under the 61.8% spit. Each tenkan and kijun tap has seen an explosive kiss of life to over 423% of that consolidation. Use Murrey Math levels for higher corrections and target as algos control the herd here, support is the cloud and sharp ABC, 1-2 moves.
On the Risk Radar
Geopolitical Tinderbox Radar
Economic and Geopolitical Watch
With the lack of stimulus and continued lockdowns initial jobless claims jumped to the highest level in three months last week, in what was a second straight weekly increase. November’s job report again showed the effect of return to school as highlighted by well over 1 million women leaving the workforce and many men also to take care of their children not returning to work. What is clear is the disconnect from the realities by pundits, particarlarly partisn biased rhetoric of the true damage to the economy, the social fabric and the selling of that as a new normal. Covid19 brought with it a new reality of brutal times for workers.
Over 14.5 million are collecting traditional jobless benefits, up from 1.7 million a year ago, with no end in sight. on Thursday, the Labor Department reported under 800,000 Americans applied for unemployment benefits for the second time since the crisis. With the Covid shutdown we lost over 22 million jobs in March and April. The September employment report, the last before the election, showed a slower pace of job growth than in August. There were 616,000 nonfarm payrolls, from 1.37 million in August. The unemployment rate expected dropped to 7.9% from 8.4%.As economies slowly reopened, the economy generated than 12 million jobs in May through September. Still a huge shortfall in jobs, and the big question is will they come back?
President Biden gave his strongest indication yet that he’ll push for swift action on coronavirus relief for the U.S. economy without Republican support, as House lawmakers cleared the way for passing his $1.9 trillion stimulus plan with only Democratic votes. Biden signaled he was resigned to his minimum-wage hike not being a part of the bill.
Stay alert to the political and geopolitical shifts with the world in flux. Government policies related to the environment, trade and tech sit high on the watch list. Political and economic agendas that Influence policy-making is top of the list. For the US it is not just external threats, including increased political tensions between countries but also internal threats highlighted by the partisan impeachment devide. Politics influence all, directly or indirectly.
The virus and psychological affect on domestic and trade relationships have impacted growth strategies with unexpected consequences In a fully fledged stock mania, nothing matters until it does. That is the feral nature of greed.
- Geopolitical tensions with China and India are on the rise as China increases military hardware near the China and India’s Himalaya border, a potential negative shock not priced by markets.
- Mario Draghi’s appointment as PM in a coalition government. China liquidity conditions eased significantly, with China’s overnight funding rate collapsing to 1.88% from the previous Friday’s 3.33%. Global anxiety that Beijing might finally be determined to rein in Bubble excess was quickly supplanted by exultation that Chinese officials wouldn’t dare risk it. Curiously, the Shanghai Composite gained only 0.4%, recovering but a fraction of the previous week’s drop. Perhaps Chinese equities discern this week’s loosened liquidity conditions were only a temporary phenomenon – with further tightening measures to follow over the coming weeks and months..
- China tightened its grip on Hong kong and threats with Taiwan continue. Secretary of State Mike Pompeo lifted communication restrictions between American and Taiwanese officials on Saturday. Pompeo said the restrictions had been imposed decades ago “in an attempt to appease the Communist regime in Beijing.”
- Russia is showing the affects of low energy prices, filtering into the socio economic dynamic
- A Brexit deal was concluded on Christmas Eve and moving rapidly through the approval process from both sides for the official start of the UK outside of Europe on Jan. 1st.
- For emerging markets the lower US dollar is helping the Fragile 5. Argentina and Turkey are still red letter risks with Covid however.
- Over $4 trillion of EM debt matures by the end of 2020, of which around a third is denominated in foreign currency, according to the Institute of International Finance. Nevertheless Banks are telling investors to buy, buy, buy, who is selling you should ask?
If you wanted to play in the big room at Vegas, you are living it. Understand risk and the madness of crowds for your own sanity and wealth.
Continued volatility with the engulfing uncertainty of the Coronavirus and in commodity markets, particularly in oil and other commodities, not to mention unrest in Iran, Libya and Iraq.
- Trade wars persist between Australia and China. The largest exporter of commodities and the worlds largest importer of commodities. China is experiencing record cold weather and it’s beligerance is hurting shooting itself in the foot. Regional partners such as Japan and India have supported Australia’s standing up to Chinese bullying.
- In addition to rising tensions with China, the United States Trade Representative said last month said that the USTR is considering a new round of tariffs on $3.1 billion in European exports from France, Germany, Spain and the U.K..We are awaiting Biden’s offical resposne.
- Chairamn Chi and President Biden had a phone hook up this week with the US saying they will review all policies but tariffs to stand in the meantime. China continued it’s theats on the matter.
Fat Tail Virus Risk
- “The highly contagious coronavirus variant first identified in the U.K. is starting to become the predominant strain in many regions of the U.S., the head of the Centers for Disease Control and Prevention said… The variant, known as B.1.1.7, now accounts for 26% of Covid-19 cases circulating across the nation, CDC Director Dr. Rochelle Walensky told reporters… It is the predominant strain in at least five regions, she added.”
- The U.S. has recorded more than 29.7 million cases of COVID-19 so far, with at least 541,000 deaths, according to John Hopkins University. According to the CDC, at least 121 million vaccines have been administered in the U.S. with more than 156 million distributed.
- Fauci believes 70%-85% of the population must be vaccinated to reach herd immunity.
The major money cents banks released earnings with mixed results for Q4:
- JPMorgan Earnings Surge On Bond and Equity Trading Revenues
- PNC Bank Earnings Improve As It Hits Record Capital and Liquidity
- Wells Fargo Disappoint Again As Revenue Misses While Other Banks Rise
- Citigroup Beats Earnings Forecasts and Frees Up Credit Loan Provisions Along With JPMorgan
- Bank of America Revenue Falls With Rates, Announces $2.9 billion Share Buyback
- Goldman Sachs Trading Accounted for 47% of Revenue in 2020, The Best In A Decade
- Banks stocks have benefited from the Federal Reserve partially lifting its hold on share buybacks, saying that banks can resume repurchases in the first quarter of 2021 as long they don’t exceed the average quarterly profits from their past four quarters. The change came after the Fed found that all major banks passed a second round of stress tests, indicating the firms can continue lending to businesses and households even if the economy dipped into a new recession.
- Potentially the top six banks can buy back $11 billion in the first-quarter. Goldman Sachs shares after the announcement led the rally with a 7.7% increase. Morgan Stanley and JPMorgan jumped 6.4% and 4.9% at intraday highs. Within minutes of the announcement all three banks have announced plans to resume buybacks in the new year.
- Last year Morgan Stanley continues in its aim to become the leading wealth and investment services firm with another aggressive aquisition. $MS announced an intention to buy Eaton Vance $EV for $7 billion. This follows the bank completing its $13 bln acquisition of E*TRADE $ETFC.
- In times of recession and credit tightening Banks risk becomes problematic, though since 2008 the World’s Central Banks have been quick to loosen the strings. Add massive purchase of failing assets.
- Banks are benefiting from the Federal Deposit Insurance Commission intending to ease the Volcker Rule, which restricts banks from making large investments into venture capital. The Volcker Rule was enacted in the wake of the 2008 financial crisis, and the new changes could potentially free up billions in bank capital. Bank stocks rose. otal Non-Financial Debt (NFD) expanded $737 billion during Q3 to a record $60.113 trillion. Through the first three quarters of 2020, NFD surged an unprecedented $5.740 trillion, or 14.1% annualized. NFD was up $6.181 trillion over the past year (11.5%) and $8.817 trillion (16.7%) over two years. For perspective, NFD expanded on average $1.830 trillion annually over the past decade. NFD has ballooned 71% since the end of 2008.
“Negative yields on long-dated government securities are more reflective of distorted market conditions than of stronger sovereign credit profiles, Fitch Ratings says. Lower interest service costs support sovereign creditworthiness, but this must be weighed against the impact of the economic conditions leading to lower yields and historically high government debt levels in a number of countries.- Fitch”
The Week Ahead – Have a Trading Plan
The key focus in the week ahead is he Institute for Supply Management’s service sector survey released Monday after the institute’s manufacturing survey came in at the highest level since 1983. Minutes from the last Federal Reserve meeting will be released next Wednesday afternoon. Fed Chairman Jerome Powell said after the March meeting that the Fed sees inflationary pressures as transient. However the markets are still concerned that it could become a bigger issue. Inflation is currently well below the Fed’s 2% target however commodity prices have soared and the pump priming of easy money posesa real risk. In turn the producer price index will also be watched closely when it is reported Friday. Fed chair man is expected to discuss the global economy on an International Monetary Fund panel Thursday. Other central bank speakers include Chicago Fed President Charles Evans, who speaks Tuesday and Wednesday, and Richmond Fed President Tom Barkin who speaks Wednesday. Treasury Secretary Janet Yellen speaks on a Chicago Council on Global Affairs webinar Monday on the economic recovery Monday. Eyes are on the upcoming first quarter earnings which are expected to be up 24.2% year-over-year, according to Refinitiv. It will be the first quarter where the prior year results included the impact of the pandemic economic shutdown.
Powell is expected to continue to emphasize that the Fed will keep rates low for a long time and maintain its easy policies to help the economy.
Central Banker Watch speeches, reports and rate moves.
Monday: April 5 2021
- 11:00 a.m. Treasury Secretary Janet Yellen at Chicago Council on Global Affairs
Tuesday April 6, 2021
- 00:30 RBA Interest Rate Decision (Apr)
- 00:30 RBA Rate Statement 11:00 IMF Meetings
- 4:05 p.m. Chicago Fed President Charles Evans
Wednesday April 7, 2021
- 9:00 a.m. Chicago Fed’s Evans
- 11:00 a.m. Dallas Fed President Rob Kaplan
- 12:00 p.m. Richmond Fed President Tom Barkin
- 2:00 p.m. Federal Open Market Committee minute
Thursday April 8, 2021
- 07:30 a.m. ECB Monetary Policy Statement
- 11:00 a.m. IMF Meetings
- 11:00 a.m. St. Louis Fed President James Bullard
- 12:00 p.m. Fed Chairman Jerome Powell discusses economy on International Monetary Fund panel
- 21:30 p.m. RBA Financial Stability Review
Friday April 9, 2021
Improvements in some economic indicators, such as home sales, manufacturing activity and in employment data have bolstered investor confidence and helped extend the rally in stocks. Support in markets comes from the Fed’s balance sheet which has ballooned to $7.2 trillion, and the central bank committed to monthly purchases of $80 billion in Treasury securities and $40 billion in mortgage securities.
Economic Events in the Week Ahead:
Sunday, April 4, 2021
- 17:00 KRW FX Reserves – USD (Mar)
- 20:30 JPY Services PMI (Mar)
- 21:00 AUD MI Inflation Gauge (MoM)
Monday, April 5, 2021
- All Day Holiday Easter Monday – Australia, New Zealand, Germany, Italy, France, Spain, Switzerland, United Kingdom
- All Day Holiday China, Hong Kong – Public Holiday
- All Day Holiday South Africa – Family Day
- 01:00 SGD Retail Sales (MoM)
- 04:30 GBP Housing Equity Withdrawal (QoQ)
- 06:30 EUR Spanish Consumer Confidence
- 09:00 SGD Manufacturing PMI (Mar)
- 09:45 USD ISM NY Business Conditions (Mar)
- 09:45 USD Markit Composite PMI (Mar)
- 09:45 USD ISM-New York Index (Mar)
- 09:45 USD Services PMI (Mar)
- 10:00 USD CB Employment Trends Index (Mar)
- 10:00 USD Durables Excluding Defense (MoM) (Feb)
- 10:00 USD Factory Orders (MoM) (Feb)
- 10:00 USD ISM Non-Manufacturing PMI (Mar)
- 11:30 USD 3-Month Bill Auction
- 11:30 USD 6-Month Bill Auction
- 19:30 JPY Average Cash Earnings (YoY)
- 19:30 JPY Household Spending (MoM) (Feb)
- 21:30 AUD ANZ Job Advertisements (MoM)
- 21:45 CNY Caixin Services PMI (Mar)
- 21:45 CNY Chinese Composite PMI (Mar)
- 23:45 JPY 30-Year JGB Auction
Tuesday, April 6, 2021
- All Day Holiday Hong Kong – Easter
- 00:30 AUD RBA Interest Rate Decision (Apr)
- 00:30 AUD RBA Rate Statement
- 03:00 EUR Spanish Unemployment
- 04:00 GBP Car Registration (YoY)
- 04:00 EUR Italian Monthly Unemployment Rate (Feb)
- 04:30 EUR Sentix Investor Confidence (Apr)
- 05:00 EUR Unemployment Rate (Feb)
- 06:45 EUR Spanish Consumer Confidence
- 08:00 USD EIA Short-Term Energy Outlook
- 08:55 USD Redbook (MoM)
- 10:00 USD IBD/TIPP Economic Optimism
- 10:00 USD JOLTs Job Openings (Feb)
- 11:00 USD IMF Meetings
- 11:00 EUR Consumer Inflation Expectation
- 11:30 NZD GlobalDairyTrade Price Index
- 16:30 USD API Weekly Crude Oil Stock
- Tentative NZD NZIER Business Confidence (Q1)
- 18:00 NZD NZIER QSBO Capacity Utilization (Q1)
- 18:30 AUD AIG Construction Index (Mar)
- 19:00 KRW Current Account (Feb)
- 19:00 AUD Services PMI
- 19:50 JPY Foreign Reserves (USD) (Mar)
- 21:00 NZD ANZ Commodity Price Index (MoM)
- 21:30 AUD RBA Chart Pack Release
Wednesday April 7, 2021
- 01:00 JPY Coincident Indicator (MoM) (Feb)
- 01:00 JPY Leading Index (MoM) (Feb)
- 03:15 EUR Spanish Services PMI (Mar)
- 03:45 EUR Italian Composite PMI (Mar)
- 03:45 EUR Italian Services PMI (Mar)
- 03:50 EUR French Markit Composite PMI (Mar)
- 03:50 EUR French Services PMI (Mar)
- 03:55 EUR German Composite PMI (Mar)
- 03:55 EUR German Services PMI (Mar)
- 04:00 CNY FX Reserves (USD) (Mar)
- 04:00 EUR Markit Composite PMI (Mar)
- 04:00 EUR Services PMI (Mar)
- 04:30 GBP Composite PMI (Mar)
- 04:30 GBP Services PMI (Mar)
- 05:00 SGD Foreign Reserves USD (MoM) (Mar)
- 07:00 USD MBA 30-Year Mortgage Rate
- 07:00 USD MBA Mortgage Applications (WoW)
- 07:00 USD MBA Purchase Index
- 07:00 USD Mortgage Market Index
- 07:00 USD Mortgage Refinance Index
- 08:30 USD Trade Balance (Feb)
- 08:30 CAD Trade Balance (Feb)
- 09:00 USD Chicago Fed President Evans Speaks
- 10:00 CAD Ivey PMI
- 10:30 USD Crude Oil Inventories
- 11:00 USD IMF Meetings
- 12:00 USD FOMC Member Barkin Speaks
- 13:30 BRL Foreign Exchange Flows
- 14:00 USD FOMC Meeting Minutes
- 15:00 USD Consumer Credit (Feb)
- 19:01 GBP RICS House Price Balance (Mar)
- 19:50 JPY Current Account n.s.a. (Feb)
- 20:30 HKD Manufacturing PMI (Mar)
- 21:00 NZD ANZ Business Confidence
Thursday, April 8, 2021
- 01:00 JPY Household Confidence (Mar)
- 02:00 EUR German Factory Orders (MoM) (Feb)
- 02:00 JPY Economy Watchers Current Index (Mar)
- 02:45 EUR French Current Account (Feb)
- 02:45 EUR French Reserve Assets Total (Mar)
- 02:45 EUR French Trade Balance (Feb)
- 03:30 EUR IHS Markit Construction PMI (Mar)
- 04:30 GBP Construction PMI (Mar)
- 05:00 EUR PPI (MoM) (Feb)
- 07:30 EUR ECB Monetary Policy Statement
- 08:30 USD Jobless Claims
- 10:30 USD Natural Gas Storage
- 11:00 USD IMF Meetings
- 11:30 USD 4-Week Bill Auction
- 11:30 USD 8-Week Bill Auction
- 12:00 USD Fed Chair Powell Speaks
- 18:30 AUD AIG Services Index (Mar)
- 21:30 AUD Building Approvals (MoM)
- 21:30 AUD RBA Financial Stability Review
- 21:30 CNY CPI (Mar)
- 21:30 CNY PPI (Mar)
Friday, April 9, 2021
- 01:45 CHF Unemployment Rate n.s.a. (Mar)
- 02:00 EUR Gemran Current Account Balance n.s.a (Feb)
- 02:00 EUR German Industrial Production (MoM) (Feb)
- 02:00 EUR German Trade Balance (Feb)
- 02:45 EUR French Industrial Production (MoM) (Feb)
- 03:00 EUR Spanish Industrial Production (YoY) (Feb)
- 03:30 GBP Halifax House Price Index
- 04:00 EUR Italian Retail Sales
- 07:00 GBP BoE Quarterly Bulletin
- 08:30 USD PPI (MoM) (Mar)
- 08:30 CAD Employment Change (Mar)
- 08:30 CAD Full Employment Change (Mar)
- 08:30 CAD Part Time Employment Change (Mar)
- 08:30 CAD Unemployment Rate (Mar)
- 10:00 USD Wholesale Inventories (MoM)
- 11:00 USD IMF Meetings
- 12:00 USD WASDE Report
- 13:00 USD U.S. Baker Hughes Oil Rig Count
- 16:30 USD CFTC speculative net positions
Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2020. One suspects it will be a year long Groundhog day for Trump, the GOP and the Democrats.
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